If you’ve been putting estate planning on the back burner, you’re not alone. Only 40 percent of Americans have a will or a trust, according to a recent survey. That leaves the remaining 60 percent without any legal say in how their assets are distributed after death.
Most individuals point to procrastination as their top reason. Yes, we’re wired to prioritize short-term planning for our day-to-day lives, but thinking long-term has its benefits, too. The end of the year is an ideal time to review your estate planning options and start 2020 off on the right foot.
In its simplest form, estate planning provides legal documentation for your final wishes and your legacy. It can help with everything from passing on your small business to establishing guardianship for your minor children. For these reasons alone, you should consider moving estate planning to the top of your to-do list.
Of course, estate planning has many other benefits as well–like setting up trusts in a way that maximizes your families’ tax savings benefit or naming a power of attorney. So, where should you start? We suggest discussing your financial and lifetime goals with your family. Then reach out to your CPA who can get the ball rolling. Read on for what to expect.
Estates, Trusts, and Wills Explained
The laws vary from state to state with Maryland and Washington, D.C. being home to some of the highest estate taxes in the nation. Your CPA can advise you when you sit down to discuss your personal estate planning goals.
And, while this is not the time for do-it-yourself documents, you should be familiar with a few common terms before jumping into estate planning.
- Estate: All the property owned at the time of death; it is distributed according to the trust or will
- Trust: A legal agreement that appoints trustees and beneficiaries; it takes effect as soon as it’s created and notarized; it maintains your family’s privacy and speeds up the process by avoiding probate court
- Will: A legal agreement that names beneficiaries; it takes effect after death; it becomes a matter of public record because it must go through probate court
Advantages of a Trust
Every situation is different, but we generally recommend going with a trust for high net worth individuals rather than a will. Both are useful documents, but a trust can give you more control over how and when you assets are distributed.
With a trust, you can set up the terms by choosing a revocable (also called a living trust because of its flexible nature) or an irrevocable trust (the terms are set in stone, but it helps avoid estate taxes). Either way, it can help protect your assets from potentially complicated family situations. In addition, you get to keep your private money matters out of the public eye by avoiding the process of probate court.
Your CPA can also guide you through the expanded gift, estate, and generation-skipping transfer (GST) taxes and explain how these reforms fit into your estate plan. Since the Tax Cuts and Jobs Act took effect, limits have increased across the board and are expected to stay that way for several years–but not forever. So, now is the time to get a written plan on the books for the greatest tax savings.
Without these important legal documents, you may leave your family open to more heartache. A trust is like a roadmap for your final wishes, which help reduce conflicts, taxes, and time spent trying to sort out the details. It’s the only way that can be sure that your assets go to the causes and people that you most value.
Incorporating wealth management goals into overall tax planning is one of Naden/Lean’s areas of expertise. We can help you through the process of estate planning, including establishing a trust. Make it a priority, and contact us today.